One Buck Forty or Die

Peer-to-peer file sharing has nothing to do with laws; it's all about economics.

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It's rampant. The new P2P systems, such as KaZaA and Morpheus, have picked up where Napster left off, and blank CDs now outsell prerecorded discs. The trend is clear: concern not for the law but for economics. This happens with disruptive technologies. If you had a machine that could make a new Lexus for $1,000, then why would you buy one from Toyota for $50,000? Because you had a moral obligation?

You'd wonder why Toyota wouldn't use the same machine to make the car for $1,000. Where is the morality in keeping the price jacked up? Likewise, too many people are asking why they should buy a CD for $16 when they can copy one for 35 cents. We are a mercantile culture, and this is a pure cost/benefits analysis. It has nothing to do with laws. There are laws against public kissing in many cities, too. Who cares? It's about economics, plain and simple.

History. Edison invented the cylinder phonograph in 1877, and he commercialized it as the Edison Phonograph in 1887. Curiously, the gramophone disc was invented by Emile Berliner the same year. In 1913, even Edison turned to the disc format. (The cylinder machine evolved into the Ediphone, a dictation device that remained popular for years.) The history of the music business is marked by such changes and dislocations.

The heyday of the 78-rpm disc was probably the 1930s, partly because of the emergence of electric recording using microphones in the mid-1920s, along with the popularity of the jukebox, which took over where the coin-operated player piano left off. It was a pay-for-play period. But over time, battles over performance rights, permissions to play discs over the radio, and musician labor strikes caused a slow evolution in the business. After World War II, this culminated in a format change, as Columbia introduced the 33 1/3 -rpm LP and RCA rolled out the 45-rpm single and EP. The format wars continued until the mid-1950s, when the 33 1/3- and 45-rpm formats became standard. Soon stereo sound was introduced. Pay for play began to die in the mid-sixties.

All the new technology had very little to do with music itself. It was about the business of distributionthe more distribution the better. Recorded music became a money machine, and by 1970 the market was flooded with musicmost of it crummy. Soon the business became known as the "music industry." Factory-like. Soulless. Unsympathetic. Exploitive.

Price fixing. The music industry began to act like a monopolist. With the advent of the CD, it found that it could continue to gouge its customers. While the industry lectures the public on illegal copying, it gets busted for price fixing. So much for the morality argument.

When Edison first released his prerecorded cylinders, they sold for $4 each. With mass production, he eventually brought the price down to 35 cents, nearly a 90 percent reduction. If the same ratio held true with $16 CDs, the cost of which has been perpetually propped up by price fixing, they would cost $1.40. Since it costs less than 25 cents to mass-produce a CD, $1.40 is reasonable and profitable.

Of course, the industry would need to adjust from extravagance and sloppiness to frugality and normality. Less Dom Perignon, for starters. And it's not as if record companies and artists won't make money. 45-rpm singles used to cost 50 cents each, and it was a big deal to sell a million of them. Elvis Presley led a good life, it seems to me, by leveraging his career with those old profit margins. Heck, he was giving away Cadillacs.

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It's a matter of competition. A manufactured CD for $1.40 can compete with a bootleg copy: Manufactured CDs generally play better and come with nice packages and liner notes. The industry can still make millions of dollars, just not billions. And many artists can go back to making money the old-fashioned wayby working harder and performing more. Things change, folks! The gravy train has left the station.

The U.S. government should not be corrupted by the Recording Industry Association of America and should instead do more about price fixing. And let's stop lecturing people about legality and morality. Students in particular are not moral reprobates, nor are they fools. They are pragmatists, and they stretch the rules along with their budgets. This is a crowd that worships the fake ID and is taught to question authority. So you're going to lecture them about copyrights? Give up. Rethink your business model. The problem will be solved.

John Dvorak is a columnist for PCMag.com and the host of the weekly TV video podcast CrankyGeeks. His work is licensed around the world. Previously a columnist for Forbes, Forbes Digital, PC World, Barrons, MacUser, PC/Computing, Smart Business and other magazines and newspapers. Former editor and consulting editor for Infoworld. Has appeared in the New York Times, LA Times, Philadelphia Enquirer, SF Examiner, Vancouver Sun. Was on the start-up team for CNet TV as well as ZDTV. At ZDTV (and TechTV) was host of Silicon...
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